Thought question: (to hand in) Using your knowledge of industry structure (Porter’s five forces) please compare the industry structure of the concentrate producers to the industry structure of the bottlers – which one is more attractive – why?
Case preparation questions: (to help you in your preparation of the case)
Why, historically has the soft drink industry been so profitable?
Compare the economics of the concentrate business to that of the bottling business: Why is the profitability so different?
How has the competition between Coke and Pepsi affect the industry’s profits?
Can Coke and Pepsi sustain their profits in the wake of flattening demand and the growing popularity of non-CSDs?
DAVID B. YOFFIE
Cola Wars Contlnue: Coke and Peps1 in 2010
For more than a century, Coke and Pepsi vied for ”throat share” of the world’s beverage market.
The most intense battles in the so-called cola wars were fought over the $74 billion carbonated soft
drink (CSD) industry in the United States.1 In a ”carefully waged competitive struggle” that lasted
from 1975 through the mid-19905, both Coke and Pepsi achieved average annual revenue growth of
around 10%, as both US. and worldwide CSD consumption rose steadily year after year.2 According
to Roger Enrico, former CEO of Pepsi:
The warfare must be perceived as a continuing battle without blood. Without Coke, Pepsi
would have a tough time being an original and lively competitor. The more successful they are,
the sharper we have to be. If the Coca-Cola company didn’t exist, we’d pray for someone to
invent them. And on the other side of the fence, I’m sure the folks at Coke would say that
nothing contributes as much to the present-day success of the Coca-Cola company than
That relationship began to fray in the early 20005, however, as US. per-capita CSD consumption
started to decline. By 2009, the average American drank 46 gallons of CSDs per year, the lowest CSD
consumption level since 1989.4 At the same time, the two companies experienced their own distinct
ups and downs; Coke suffered several operational setbacks while Pepsi charted a new, aggressive
course in alternative beverages and snack acquisitions.
As the cola wars continued into the 215t century, Coke and Pepsi faced new challenges: Could
they boost flagging domestic CSD sales? How could they compete in the growing non-CSD category
that demanded different bottling, pricing, and brand strategies? What had to be done to ensure
sustainable growth and profitability?
Economics of the U.S. CSD Industry
Americans consumed 23 gallons of CSDs annually in 1970, and consumption grew by an average
of 3% per year over the next three decades (see Exhibit 1). Fueling this growth were the increasing
availability of CSDs and the introduction of diet and flavored varieties. Declining real (inflation-
adjusted) prices that made CSDs more affordable played a significant role as well.5 There were many
Professor David B. Yoffie and Research Associate Michael Slind prepared the original version of this case, ”Cola Wars Continue: Coke and Pepsi
in 2006,” HBS N 0. 706-447. This version was prepared by Professor David B. Yoffie and Research Associate Renee Kim. This case was developed
from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements,
sources of primary data, or illustrations of effective or ineffective management.
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